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What are market infrastructure institutions?
Recently, Securities and Exchange Board of India (SEBI) noted that the National Stock Exchange (NSE), the country's largest equities and derivatives exchange is a systemically important market infrastructure institution (MII).
Significance
- Stock exchanges, depositories and clearing houses are all Market Infrastructure Institutions and constitute a key part of the nation's vital economic infrastructure.
- According to a panel set up (in 2010) under the chairmanship of former Reserve Bank of India Governor Bimal Jalan, the term ‘market infrastructure’ denotes such fundamental facilities and systems serving this capital market.
- The primary purpose of the securities /capital market is to enable allocation/reallocation of capital/financial resources.
- MIIs helps in optimal use of money in the economy and fostered economic development.
- They constitute the nucleus of the capital allocation system and are indispensable for economic growth and have a net positive effect on society like any other infrastructure institution.
Significance
- MIIs are systemically important in India is clear from the phenomenal growth of these institutions in terms of market capitalization of listed companies, capital raised and the number of investor accounts and the value of assets held in the depositories’ account.
- Any failure of such an MII could lead to even bigger cataclysmic collapses that may result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market and the country.
- Given the potential for a domino effect that a failure of an MII could have on the wider market and economy, governance and oversight are absolutely critical and need to be of the highest standards.
- Among stock exchanges, the SEBI lists seven, including the BSE, the NSE, the Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India.
- There are two depositories — charged with the safekeeping of securities and enabling their trading and transfer — that are tagged MIIs: the Central Depository Services Ltd. and the National Securities Depository Ltd.
- The regulator also lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation.
- Clearing houses, for their part, help validate and finalize securities trades and ensure that both buyers and sellers honour their obligations.
POSTED ON 01-03-2022 BY ADMIN
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